The restaurant industry is performing well due to robust consumer spending, growing disposable income, and the growing dining-out trends. The industry is poised for further growth due to easing inflation, rapid digitization, changing consumer preferences, and the rise of online delivery services.
Before diving deeper into their fundamentals, let’s discuss why the restaurant industry is well-positioned for growth.
The restaurant industry is performing well due to the solid growth in eating out and ordering food for takeout/delivery. Robust consumer spending is also boosting the industry’s prospects. Consumer spending rose 0.7% in September, and food services and drinking places spending grew by 0.9% sequentially and 9.2% year-over-year.
Spending on goods, which includes food and beverages, is expected to remain healthy. The National Restaurant Association’s expects the industry to reach $997 billion in sales this year. FHN Financial’s chief economist, Chris Low, said, “Debt levels are low, savings are still pretty high, and income is solid. There is nothing compelling in the data suggesting a spending slowdown is evitable.”
The restaurant industry is set for strong growth because of the increasing popularity of dining out, takeout, and delivery. Growth in online food delivery has boosted the prospects of the restaurant industry. Online food delivery has seen a jump due to the availability of diverse cuisine options. The global online food delivery services market is projected to reach $159.46 billion in 2027, growing at a CAGR of 2.8%.
Additionally, a focus on dining experiences, the rising trend toward experience-based dining, and greater use of digital technology to meet evolving customer preferences drive the industry’s growth.
Digital technology is changing the restaurant industry. Adopting digital technology is helping cut costs, improve efficiency, and enhance customer experiences with AI, cloud solutions, self-service options like kiosks, and online delivery. The global foodservice market is expected to grow at a CAGR of 10.8%, reaching $5.42 trillion by 2030.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Restaurants picks, beginning with the third choice.
Stock #3: Starbucks Corporation (SBUX)
SBUX operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates through three segments: North America, International, and Channel Development.
On November 11, 2023, SBUX announced its Triple Shot Reinvention Strategy, emphasizing elevating the brand, strengthening digital capabilities, and expanding globally. The plan includes doubling Starbucks Rewards members, expanding to 55,000 stores globally by 2030, unlocking $3 billion in efficiency savings, and reinvigorating the partner culture.
SBUX’s CEO, Laxman Narasimhan, emphasized the commitment to long-term growth, brand elevation, and shareholder returns. The strategy builds on the past year’s success and aims to deliver sustainable growth and value to partners, customers, and shareholders.
In terms of the trailing-12-month EBIT margin, SBUX’s 15.30% is 106.5% higher than the 7.41% industry average. Likewise, its 11.46% trailing-12-month net income margin is 160.8% higher than the 4.40% industry average. Additionally, its 14.01% trailing-12-month Return on Total Assets is 260.6% higher than the 3.88% industry average.
SBUX’s total net revenues for the fiscal fourth quarter ended October 1, 2023, increased 11.4% year-over-year to $9.37 billion. Its non-GAAP operating income increased 34.1% from the year-ago value to $1.71 billion. The company’s attributable net earnings increased by 38.8% year-over-year to $1.22 billion. In addition, its non-GAAP EPS increased 30.9% year-over-year to $1.06.
For the quarter ending December 31, 2023, EPS and revenue are expected to increase 28.2% and 11.5% year-over-year to $0.96 and $9.72 billion, respectively. It surpassed the consensus EPS estimates in three of the four trailing quarters. Over the past month, the stock has gained 12% to close the last trading session at $104.33.
SBUX’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
Stock #2: Biglari Holdings Inc. (BH)
BH primarily operates and franchises restaurants in the United States. It owns, operates, and franchises restaurants under the names of Steak n Shake and Western Sizzlin.
In terms of the trailing-12-month net income margin, BH’s 5.46% is 24.2% higher than the 4.40% industry average. Likewise, its 22.75% trailing-12-month EBITDA margin is 106.1% higher than the 11.04% industry average. Additionally, its 6.22% trailing-12-month Capex/Sales is 90.9% higher than the 3.26% industry average.
BH’s total revenue for nine months that ended September 30, 2023, increased 1.8% year-over-year to $274.65 million. Its net earnings attributable to BH shareholders came in at $10.31 million, compared to a net loss of $42.07 million in the year-ago quarter. Also, the company’s net earnings per average equivalent Class A share came in at $35.44, compared to a loss per share of $140.30 in the year-ago quarter.
Over the past three months, BH has gained 26.5% to close the last trading session at $142.60.
BH’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #5 in the same industry. It has a B grade for Stability and Sentiment. To access BH’s grades for Growth, Value, Momentum, and Quality, click here.
Stock #1: Rave Restaurant Group, Inc. (RAVE)
RAVE operates and franchises pizza buffet, delivery/carry-out (delco), and express restaurants under the Pizza Inn and Pie Five trademarks in the United States and internationally. The company operates through three segments: Pizza Inn Franchising, Pie Five Franchising, and Company-Owned Restaurants.
In terms of the trailing-12-month net income margin, RAVE’s 14.13% is 221.5% higher than the 4.40% industry average. Likewise, its 18.95% trailing-12-month EBIT margin is 155.9% higher than the 7.41% industry average. Additionally, its 15.02% trailing-12-month levered FCF margin is 191.4% higher than the 5.15% industry average.
RAVE’s revenues for the fiscal first quarter that ended September 24, 2023, increased 2.8% year-over-year to $3.09 million. Its net income rose 25.7% over the prior-year quarter to $386 thousand. The company’s income per share of common stock stood at $0.03, up 50% year-over-year. In addition, its adjusted EBITDA increased 8.5% year-over-year to $588 thousand.
Over the past year, the stock has gained 62.3% to close the last trading session at $2.50.
RAVE’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #3 in the Restaurants industry. It has an A grade for Quality and a B for Sentiment. Click here to see RAVE’s Growth, Value, Momentum, and Stability ratings.
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SBUX shares were trading at $103.58 per share on Monday afternoon, down $0.75 (-0.72%). Year-to-date, SBUX has gained 6.61%, versus a 16.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More...
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